Case Preview: Oracle America Inc v M-Tech Data Ltd & Anor

On 30 April and 1 May 2012 the Supreme Court heard an appeal against the Court of Appeal’s decision to set aside an order for summary judgment. The case concerns a trademark infringement claim brought by Oracle America, Inc against a parallel importer of its hardware, M-Tech Data Ltd, in relation to which the High Court held that M-Tech’s defences (based on principles of EU competition law) had no reasonable prospect of success.

Background

M-Tech imported into the UK 64 second-hand hard disk drives bearing the trademark of Oracle without its consent. Oracle brought a claim against M-Tech under article 5(1)(a) of the Trade Mark Directive (the “TMD“), which provides that a trade mark proprietor may prevent third parties from using signs identical to his trademark in the course of business without his consent.

Under article 7 of the TMD a trade mark owner’s rights pursuant to article 5 are exhausted if the goods were first marketed in the European Economic Area by the trade mark owner himself, or by a third party with his consent. Oracle was able to identify to the court that the hard disk drives had not been first marketed in the EEA.

In its defence M-Tech sought to rely on a number of “Euro-defences”, asserting that articles 5 and 7 should be interpreted with reference to the principles of European law set out below.

Articles 28 and 30 EC and abuse of rights

Article 28 of the EC Treaty prohibits quantitative restrictions on imports between member states and all measures having equivalent effect. M-Tech submitted that the secondary market for Oracle hardware is made up of traders authorised by Oracle and independent resellers. Oracle and its network of authorised resellers have access to a tracking system allowing them to identify whether a product has been first placed in the EEA with Oracle’s consent; a system which is not available to independent traders. M-Tech argued that this policy, combined with Oracle’s policy of aggressively enforcing its trademark rights against independent resellers, had the effect of shutting down the independent sector of the market, and that such a policy was a measure having “equivalent effect” under article 28.

Article 30 of the EC Treaty provides that article 28 shall not preclude restrictions on imports where such measures are justified on the grounds of protection of commercial property; however, such restrictions may still be prohibited if they constitute a disguised restriction on trade. M-Tech argued that Oracle’s conduct was not justified under article 30 and that such conduct was also an abuse of the rights conferred by article 5 of the TMD.

Article 81 EC

M-Tech also argued that the enforcement of Oracle’s trade mark rights should be seen in the context of its agreements with its distributors. These agreements had the effect of restricting trade in contravention of article 81 of the EC Treaty, which prohibits agreement between undertakings that prevent, restrict or distort competition within the EEA.

The High Court Decision

The High Court held that M-Tech’s defences had no real prospect of success and awarded summary judgment against M-Tech. This was on the basis that the defences involved reading further exceptions into article 7 of the TMD, which was inconsistent with case law suggesting that the TMD embodied a complete harmonisation of the rules relating to trademark rights. Kitchin J further argued that there was no sufficient connection between the agreements with distributors and the enforcement of trade mark rights in order for the article 81 defence to prevail.

The Court of Appeal Decision

The Court of Appeal set aside the summary judgment and held that M-Tech’s argument that articles 5 and 7 of the TMD had to be read consistently with the principles of EU law (in particular, with articles 28 and 30 of the EC Treaty) had a real prospect of success. It was arguable on the facts that a breach of article 28 could be established which was not capable of justification under article 30 of the EC Treaty or article 7 of the TMD. Arden LJ found that that Oracle’s conduct arguably had more to do with the desire to protect its profit margin by restricting competition than with an attempt to protect its trade mark. The judge also commented that there was no case law directly concerned with whether the practises carried on by Oracle fell contrary to article 28 of the EC Treaty, and if so, whether such actions would qualify the rights set out in articles 5 and 7 of the TMD.

Arden LJ also disagreed with Kitchin J’s position on the defence under article 81 of the EC Treaty. The judge suggested that the distribution agreements should be viewed as part of an overall strategy to exclude independent resellers from the market and that with this broad approach in mind, there was an arguable point on connection between these agreements and the claim for trademark infringement.

Going forward

If the Supreme Court dismisses Oracle’s appeal, it will be interesting to see how this case progresses. Even if the Court decides that M-Tech’s defences are arguable for the purposes of a summary judgment application, it is still unclear whether they will succeed as a matter of law. There are strong arguments in favour of a referral of the points in issue to the European Court of Justice, particularly as the interaction between competition law and intellectual property rights remains a complex area.